EU ban will not impact CPO prices: Sime Darby Plantation

KUALA LUMPUR: Sime Darby Plantation Bhd, which saw its net profit jump 34% for the second quarter ended Dec 31, 2017 (Q2’18), does not see the demand for palm oil falling and affecting palm oil prices in the event of a ban by the EU.

Sime Darby Plantation is the world’s largest oil palm plantation company by planted area, producing about 4% of the global crude palm oil (CPO) output.

A European Parliament resolution on Jan 17 called for the phasing out of palm oil from the EU biofuel programme by 2020, claiming that it resulted in the destruction of forests. However, this decision is not final.

Sime Darby Plantation executive deputy chairman and managing director Tan Sri Mohd Bakke Salleh foresees reputational damage of palm oil if the ban is enforced, but does not see the price of palm oil being impacted.

“The usage of canola or rapeseed oil will be channeled to the production of biodiesel, (but) countries like China and India will switch from canola to palm oil (hence increasing the demand for palm oil),” he told a media briefing after announcing the group’s financial result for Q2’18 today.

Bakke projected a CPO price of RM2,500-RM2,600 per tonne for 2018 and does not expect a spike in CPO prices due to the excellent harvest of soybean in the last four years.

Meanwhile, he confirmed that Sime Darby Plantation has submitted an expression of interest to buy a stake in India’s ailing Ruchi Soya Industries Limited. Ruchi Soya is India’s largest manufacturer of edible oil.

Bakke said Sime Darby Plantation is also looking to sell a minority stake in wholly owned New Britain Palm Oil Ltd (NBPO) in Papua New Guinea, ideally to a Papua New Guinea strategic investor, to pare down its stake in NBPO to 51%-60%.

For Q2’18, Sime Darby Plantation’s net profit rose 34% to RM429 million from RM319 million a year ago attributable to higher earnings from the Malaysian upstream operations and reduced finance costs as a result of lower borrowings.

Revenue jumped 4% to RM4.09 billion compared with RM3.93 billion in the previous year’s corresponding quarter.

For the six months period, its net profit tripled to RM1.45 billion from RM470 million a year ago, which included a gain on sale of land to Sime Darby Property of RM676 million and a one-off reversal of accruals of RM95 million in Q1’18.

Revenue was up 10% to RM7.63 billion compared with RM6.74 billion in the previous year’s corresponding period.

“We hope to close the year on a satisfactory note,” said Bakke.